SUMMARY OF THE DOD FISCAL 2013 BUDGET PROPOSALPRINCIPAL OBJECTIVESIn January 2012 the Department published a paper -- “Defense Budget Priorities and Choices” – identifying the major budgetary changes made in response to the new defense strategy. Changesin the Fiscal Year 2013 Budget support U.S. defense strategy and are organized around four major themes:1.

Making more disciplined use of defense dollars.2.

Applying strategic guidance to force structure and investment.3.

Ensuring the quality of the all-volunteer force.4.

Fully supporting deployed warfighters.Disciplined Use of Defense DollarsThe FY 2013 budget continues the reform agenda advanced in the Department’s previousthree budgets. The FY 2012 budget proposed more than $150 billion in efficiencies, which are being implemented. The FY 2013 budget proposes about $60 billion in additional reductionscompared with last year’s plan, to be achieved over the next five years through improved business practices and changes in lower-priority programs. These savings will be applied todeficit reduction.The Department will achieve efficiencies in travel and printing, enterprise informationtechnology, strategic sourcing, better buying practices, streamlined installation support,rephasing military construction, and reducing expenses in the Office of the Secretary of Defenseand Defense Agencies.To provide better financial information, we are also increasing our emphasis on auditreadiness and accelerating key timelines. At the Secretary’s direction, the Department is aimingto achieve audit readiness of the Statement of Budgetary Resources (SBR) for general funds bythe end of Calendar Year 2014, three years ahead of the original schedule. The Department is ontrack to meet the legal requirements for full audit readiness for all DoD financial statements by2017. We are also implementing a course-based certification program for defense financialmanagers to ensure that they receive the training needed for audit readiness and other keyinitiatives.

page 2Force Structure and InvestmentPresident Obama’s strategic guidance for the Department of Defense was published inJanuary 2012 and provides a blueprint for the Joint Force in 2020 and a rationale for the changesin force structure and investment.Strategic goals include: (1) creating a force that is smaller and leaner, but also agile,ready, flexible, and technologically advanced; (2) rebalancing U.S. global posture toward theAsia-Pacific and Middle East regions; (3) building innovative partnerships and strengtheningalliances elsewhere in the world; and (4) protecting and prioritizing investments in newcapabilities. These actions will ensure that the U.S. can quickly confront and defeat aggressionfrom any adversary, anytime, anywhere.To achieve these goals, the FY 2013 budget begins a series of decisions and changes thatwill be carried out over the next several years:

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The Armed Services will be resized by 2017 – the Army to 490,000 (down 72k),Marine Corps to 182,100 (down 20k), Navy to 319,500 (down 6.2k), and Air Force to328,600 (down 4.2k). There will be more-limited reductions in the Reserves and National Guard.

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Force structure reductions will save about $50 billion over the Future Years DefenseProgram (FYDP). Proposed cuts include a minimum of eight Army Brigade CombatTeams (pending further review), six Marine Corps battalions and four TACAIR squadrons, seven Air Force TACAIR squadrons, and retirement of seven older Navycruisers.

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To align our base structure with our force structure, the Department is requesting twonew base closure rounds, one in 2013 and another in 2015.Rebalancing towards Asia-Pacific and the Middle East will require investments in FY2013 – including $0.3 billion to develop the next generation bomber, initial funding of $0.1 billion to develop increased cruise missile capacity of future Virginia-class submarines, and $1.8 billion to upgrade tactical sensors and other electronic warfare equipment.Building innovative partnerships and stronger alliances will mean organizational changes,including two fewer brigades in Europe, as well as continued investments in NATO groundsurveillance ($0.2 billion), the Combatant Commanders Exercise and Engagement Program ($0.8 billion), and security force assistance ($0.4 billion).To protect and prioritize new investments, funding is included for FY 2013 for high- priority initiatives including Special Operations Forces ($10.4 billion), unmanned air systems($3.7 billion), cyber capabilities ($3.4 billion), missile defense ($9.7 billion), space initiatives($8.0 billion), the new Air Force tanker program ($1.8 billion), and investment in science andtechnology ($11.9 billion).

page 3Prioritizing investments will also mean reductions to existing programs and savings of about $75 billion over the FYDP. Among them are restructuring of the Joint Strike Fighter toallow more time for development and testing (-$15.1 billion), delayed development of theArmy’s Ground Combat vehicle due to contracting delays (-$1.3 billion), and reductions to the Navy’s shipbuilding program (-$13.1 billion).Terminated programs will save $9.6 billion over the FYDP. Included are the Block 30version of Global Hawk, which is no longer cost-effective; the Defense Weather SatelliteSystem, due to the availability of existing satellites; and the C-27A Mobility Aircraft, whosemission can be met with C-130 transport planes.Support for All-Volunteer ForcePeople remain the most fundamental element of strategy, and the FY 2013 budget keepsfaith with Service Members by protecting well-deserved benefits for active duty personnel andtheir families, taking steps to modernize military health and retirement systems, providingsupport for Service Members returning from war, and proposing a pay raise during what isotherwise a time of austerity. These considerations are especially important as the size of theArmed Forces is reduced.As a matter of policy, military compensation should be commensurate with the stress of military life and sufficient to attract and retain needed personnel. Accordingly, the FY 2013 budget includes a basic pay raise of 1.7 percent, consistent with the Employment Cost Index.The FY 2013 budget contains significant amounts for the support of wounded warriors,$48.7 billion to fully fund the Military Health System, and $8.5 billion in family support – for DoD schools, commissaries, counseling, child care, and other programs.Also included is funding for proposals to facilitate the transition of our Service Memberswho will return to civilian life, including support for programs that help veterans to translatetheir military skills to civilian work. The FY 2013 budget includes $0.2 billion for the YellowRibbon Reintegration Program and $0.1 billion in transition assistance.While continuing to support the All-Volunteer Force, the Department did conduct areview of military pay and benefits. The cost of pay and benefits has grown by nearly 90 percentsince 2001, about 30 percent more than inflation. Changes are needed now to avoid overly largecuts in force structure and modernization at a later date.As a result, the Department proposes changes in military healthcare – largely throughincreases in TRICARE enrollment fees, new Standard/Extra and TRICARE-for-life enrollmentfees, and increases in pharmacy co-pays. None of the fee proposals in the budget would apply toactive Service Members, survivors of Service Members who died on active duty, or retirees whoretired due to disability. Basic pay raises will be slowed in the years beyond FY 2014, whichwill give military members time to plan for lower increases. Total savings in military pay and benefits amount to about $29 billion over the next five years. These changes amount to slightlymore than 10 percent of required savings even though pay and benefits represent about one-thirdof the defense budget.